Why Millennials Care About Social Impact Investing

In a variety of ways, millennials seem determined to shake off the apathetic label assigned to them by their elders. For starters, the work ethic gap seems to be a myth. Young folks work hard — and they also want their work to matter.

And now they want these investments of time, concern and money to matter, as well.

Most of us probably think of financial investments as passive and self-serving, but making the right investment can see a return for both the investor and for the world — and help give us a sense of accomplishment and happiness at work.

A new kind of investment strategy

According to a United States Treasury survey, millennials are investing in organizations that prioritize the greater good more than any previous generation.

Millennials want to invest in organizations that don’t focus on lining the pockets of their boards of directors. They want to make strategic investments with the intention of positively impacting the world. In a survey of 684 investors, millennials were found to make more “social impact investments” than any other segment of America, while 85 percent of millennials who responded to the survey signaled interest for this type of investing.

In a World Economic Forum study, 5,000 millennials surveyed in 18 different countries indicated that the overall top priority for any business should be “to improve society.”

But what does that really look like?

What is social impact investing?

Catalysts for Change suggests that the millennial generation — all 75 million of them — are likely to become the wealthiest generation in America’s history. As baby boomers grow old and pass on, some $41 trillion is expected to be transferred to their heirs in the millennial generation. And given what we’ve learned about the average millennial’s tendency toward civic engagement, we might see quite a bit of that money put to pro-social uses.

Why? It’s pretty simple — millennials might just be the first generation to take the phrase “money doesn’t buy happiness” seriously. That they prioritize “making a difference” over a cushier paycheck is proof enough of that. Millennials tend to be happier at work when they know the money that passes through their hands is being used for something wholesome.

Investing targets in modern society — most of which deal with access to fundamental resources, opportunities and rights that many of us take for granted — include: education, healthcare access and quality, environmental sustainability, access to healthful food and potable water, and civil rights and social justice.

Addressing the core issues is relatively simple. With the help of financial advisors, millennials are vetting prospective investment opportunities and major, publicly traded corporations according to their public declarations of social responsibility.

Millennials are more likely to invest in companies with a clearly defined pledge or mission. The data also show that organizations with a green focus, including products and services offered by hedge funds and venture capitalists, are a favorite among millennials. They have a very different idea of what capitalism is capable of, compared with their elders. They understand that the world becomes a happier and more egalitarian place to live when we all share the responsibility to make it better.

The size of the impact investing market

The impact investing market is expected to be worth a staggering $1 trillion by the end of the year 2020. Clearly, there’s a demand.

There’s a distinction to be made between impact investing and charitable giving, if the difference isn’t plain by now. Impact investing, for instance, is more intentional — that is, the funds are targeted specifically and deliberately toward an organization of the investor’s choosing. Impact investing also provides certain return expectations, which ordinary charitable giving does not.

Perhaps the key here is the idea of impact measurement. Transparency and accountability are present in a way that is generally not seen in the world of charitable giving. Have you ever been asked to give an extra $1 at the grocery store checkout? You didn’t choose the charity, and you likely know nothing about it. You can’t be 100 percent sure where your dollar is actually going to go — that’s a lot of unknowns, and unknowns don’t sit well with millennials.

Impact investing is becoming the method of choice for young folks who want to bring about positive, incremental change in the world around them, and who derive happiness — at home and at work — from making a difference.

A better world

Assessing the accountability and trustworthiness of an investment opportunity or financial partner can be difficult, but millennials are using their natural skepticism and modern research skills to separate the pro-social investments from the dubious ones.

This attention to detail is a key point of distinction between millennials and older generations. Young people grew up using the Internet to fact-check and get to the bottom of things, and they’re bringing that spirit of discernment and discovery to their investing activities, using the information freely available online to discover where their money can do the most good.

And the best opportunities, it turns out, are a mixture of old-school philanthropy and impact investments. More than half of surveyed millennials, for instance, are interested in giving monthly to pro-social organizations, while more than 70 percent are interested in young professional groups with a nonprofit mission. Millennials are discovering anew the joy that comes from giving back.

They’re making a gift of their time as well as their money — and that means the future is looking bright.

Investment, Insurance and Advisory Products and Services, and Foreign Exchange Transactions, are Not FDIC Insured or Insured by Any Federal Government Agency, Not a Deposit, Not Bank Guaranteed and May Lose Value.

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